Explaining Intrinsic Impatience via an Indifference Curve
An individual has a consumption plan where they consume the same amount of goods today as they will tomorrow. On a graph with 'consumption today' on the horizontal axis and 'consumption tomorrow' on the vertical axis, this plan is a point on their indifference curve. Explain what the shape of the indifference curve around this specific point reveals about their preference for current versus future consumption if they exhibit intrinsic impatience. Specifically, how does the trade-off required to stay on the curve demonstrate this preference?
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Figure 9.4b: A Visual Comparison of Intrinsic Impatience
Anya and Ben both start with a plan to consume $100 worth of goods today and $100 tomorrow. They are then presented with an alternative plan where they consume only $80 today. To feel equally satisfied as their original plan, Anya would need to consume $125 tomorrow, while Ben would need to consume $130 tomorrow. Based on this information, which of the following statements is correct?
Evaluating Consumption Choices
Interpreting Intertemporal Choice
Consider an individual who is currently planning to consume the same amount of goods today and tomorrow. If this individual displays intrinsic impatience, they would be willing to give up $10 of consumption today in exchange for exactly $10 of additional consumption tomorrow.
An individual's consumption plan is currently 'smoothed' so that they consume the same amount of goods today as they will tomorrow. This individual values a good received today more than the same good received tomorrow. If their consumption today is reduced by $15, which of the following changes in tomorrow's consumption would leave them feeling equally satisfied as their original plan?
An individual states they are equally happy with any of the following three consumption plans:
- Plan X: Consume $100 worth of goods today and $100 worth of goods tomorrow.
- Plan Y: Consume $90 worth of goods today and $115 worth of goods tomorrow.
- Plan Z: Consume $110 worth of goods today and $88 worth of goods tomorrow.
Based on a comparison of these plans, what can be concluded about this individual's preferences?
Comparing Client Preferences for Consumption
An individual's consumption plan is currently 'smoothed' so that they consume the same amount of goods today as they will tomorrow, represented by a point on their indifference curve. If their consumption today is reduced by $20, which of the following changes in tomorrow's consumption, if it keeps them on the same indifference curve, would demonstrate that they value current consumption more than future consumption?
Explaining Intrinsic Impatience via an Indifference Curve
An individual's preferences for consumption now versus consumption later can be represented by an indifference curve. Consider a point on this curve where consumption is perfectly smooth (i.e., the same amount is consumed in both periods). If this individual values current consumption more than future consumption, what must be true about the indifference curve at this specific point?
Consider an individual who is currently planning to consume the same amount of goods today and tomorrow. If this individual displays intrinsic impatience, they would be willing to give up $10 of consumption today in exchange for exactly $10 of additional consumption tomorrow.